Curious Cat Investing Dictionary: Fed Funds Rate

Federal Funds Rate - interest rate for overnight loans between banks. While not set directly by the Fed it is largely controled by the Fed through he discount rate, positions the Fed takes in the market. The rate has a great influence on the other rates set by banks and financial institutions for loans. The Federal Reserve Board uses the power to set this rate as a tool to manage the economy. When the board feels the economy is in distress and inflation is controled they may cut the rate. When the board feels the economy may be in danger of overheating and igniting inflation the board may raise the rate.Historical data from the Federal Reserve web site.

Related Terms:

Federal Reserve Discount Rate - The rate set by the Fed for loans to member banks when they borrow from the Fed directly.

Federal Reserve Board (the Fed) - "Today the Federal Reserve's duties fall into four general areas: (1) conducting the nation's monetary policy; (2) supervising and regulating banking institutions and protecting the credit rights of consumers; (3) maintaining the stability of the financial system; and (4) providing certain financial services to the U.S. government, the public, financial institutions, and foreign official institutions." Federal Reserve Board web site July, 2004.